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Friday Roundup

Hollywood film studios, more FBI agents, asset recovery, quotable, and for the reading stack.  It’s all here in the Friday roundup.

Hollywood Film Studios

A recent Wall Street Journal article [1] went in-depth regarding the FCPA scrutiny of Hollywood film studios doing business in China. According to the article, Sony received a subpoena from the SEC in June 2013 regarding possible violations of the U.S. Foreign Corrupt Practices Act.  The article states:

“The SEC’s questions to Sony dealt primarily with potential bribery related to the release of “Resident Evil: Afterlife” in China in 2010, according to email communication between Sony’s in-house and outside legal counsel. A Sony-led investigation that followed the SEC subpoena examined the company’s distribution efforts more broadly, the emails show. The subpoena indicates an escalation of an inquiry that began in 2012 when the SEC requested that every major studio voluntarily provide information about their movie-distribution practices in China, a request that was publicly reported at the time. However the SEC’s specific concerns weren’t disclosed nor was it previously known that the agency had stepped up its probe with a subpoena. Sony documents show that the SEC refers to its probe as “In the Matter of Lions Gate Entertainment  [2]Corp,” indicating that the rival Hollywood studio behind “The Hunger Games” has been asked questions as well.”

Many FCPA enforcement actions have, as a root cause, a foreign trade barrier or distortion.  This appears to be true in the case of the Hollywood film studios.  As stated in the article, the companies ran into “China’s quota and censorship systems to secure distribution for their films in that country.”  According to the article:

“Hollywood studios are barred from distributing films on their own in China, but instead work with the state-owned China Film Group to secure one of the 34 highly coveted spots offered each year for imported movies. [Third party distribution firms] help studios navigate the bureaucracy.”

More FBI Agents

The Wall Street Journal reports [3]:

“The Federal Bureau of Investigation’s foreign corruption program will more than triple the number of agents focused on overseas bribery this year to more than 30 from around 10, according to bureau officials. The agents will focus on both sides of corruption, hunting down executives that pay off foreign officials, while also helping other nations recoup funds stolen by corrupt leaders. The FBI usually can’t directly arrest corrupt foreign leaders, but at the request of foreign law enforcement the bureau can help locate funds stolen by kleptocrats. […]  “With the growing global economy and the growing nature of international commerce with globalization of more companies and economies, it’s creating more opportunities for the potential of FCPA and corruption,” said Joseph Campbell, assistant director of the bureau’s criminal division, in an interview. The newly assigned agents will work out of field offices in New York, Washington, D.C., San Francisco, Los Angeles, Miami and Boston, with backup from forensic analysts and other specialists in headquarters, which is also located in the capital. Currently, the bureau’s foreign anti-corruption field agents are managed out of a field office in Washington, D.C. and split their time while pursuing other white collar crimes, bureau officials said.”

Asset Recovery

As part of its Kleptocracy Asset Recovery Initiative, the DOJ recently announced [4] the filing of a “civil forfeiture complaint seeking the forfeiture of nine properties worth approximately $1,528,000 that were allegedly purchased with funds traceable to a $2 million bribe paid by a Honduran information-technology company to the former Executive Director of the Honduran Institute of Social Security.”

According to the DOJ:

“From 2010 to 2014, Dr. Mario Roberto Zelaya Rojas, 46, of Tegucigalpa, Honduras, served as the Executive Director of the Honduran Institute of Social Security (HISS), a Honduran Government agency that provides social security services, including workers’ compensation, retirement, maternity, and death benefits.  According to allegations in the forfeiture complaint, Zelaya solicited and accepted $2.08 million in bribes from Compania De Servicios Multiples, S. de R. L. (COSEM) in exchange for prioritizing and expediting payments owed to COSEM under a $19 million contract with HISS.  Zelaya also allegedly instructed COSEM to make bribe payments to two members of the Board of Directors of HISS charged with overseeing the COSEM contract.  To conceal the illicit payments, COSEM allegedly sent the bribes through its affiliate company, CA Technologies.  As further alleged in the complaint, the bribe proceeds were then laundered into the United States and used by Zelaya and his brother, Carlos Alberto Zelaya Rojas, to acquire real estate in the New Orleans area.  Certain properties were titled in the name of companies nominally controlled by Zelaya’s brother in an effort to conceal the illicit source of the funds as well as the beneficial owner.  The current action seeks forfeiture of nine properties acquired with the proceeds of Zelaya’s alleged bribery scheme.”

In the DOJ’s release, Assistant Attorney General Leslie Caldwell stated:

“Our action today highlights how the Criminal Division’s Kleptocracy Initiative, with our network of law enforcement partners around the globe, will trace and recover the ill-gotten gains of corrupt officials.  Criminals should make no mistake:  the United States is not a safe haven for the proceeds of your crimes.  If you hide or invest your stolen money here, we will use all the legal tools we have to find it and seize it.”

Quotable

In this [5] Global Investigations Review article, Timothy Dickinson [6] (Paul Hastings and a veteran of the FCPA bar) states:

“Ten years ago, I would have been happy to bet anyone a doughnut that I could accurately define what a foreign official is. Now, with various court definitions and a lack of clarity from the DoJ, I fear I might actually lose my doughnut.”

In this [7] piece about the SEC’s internal controls enforcement theories, Michael Shepard [8] (Hogan Lovells) states:

“Beneath the surface of these developments [the increased use of the internal controls provisions] is a disconnect about what the internal controls provisions actually require. The government — and especially the SEC — has settled on an interpretation of the internal controls provision that is at odds with the understanding of many in-house finance professionals about what internal controls are intended to address. Ask corporate finance professionals about internal controls at their companies and you will likely get an answer about processes designed to protect the company’s assets at a level that would materially impact the company’s financial statements. Ask your friendly neighborhood SEC investigator about internal controls and you will instead get inquiries about the exponentially smaller level of amounts of money that would be enough to influence a low-paid public official in a poor third-world country. Not only is the SEC looking at controls on a more microscopic level, but its predilection to pursue internal controls charges sometimes seems based on an interpretation of the FCPA that borders on strict liability. Circumstantial evidence of a bribery violation — such as evidence that some money may have left the company without proper authorization or accounting records — translates for the SEC into proof that the company’s controls were inadequate. Statutory elements of reasonableness and scienter get short shrift in a world in which the SEC aggressively pushes internal controls charges, and the vast majority of companies remain predisposed to settle.”

Reading Stack

Paul Barrett at Bloomberg BusinessWeek goes in-depth about the FCPA charges pending against Joseph Sigelman in an article titled “Does This Man Look Like a Felon to You [9]?”

From the New Yorker, “Can Corruption Be Erradicated [10]?”

“[C]orruption has always permeated so many fields of human endeavor that it may be not a corruption of anything—but, rather, a regrettable feature of our natural condition. Accountable government is an ideal, to be sure. It may also be an aberration.”

[O]ur conceptual vocabulary for understanding [corruption], let alone combatting it, remains conspicuously meagre. The very term “corruption” is so inclusive as to be almost meaningless, encompassing bribery, nepotism, bid-rigging, embezzlement, extortion, vote-buying, price-fixing, protection rackets, and a hundred other varieties of fraud.”

From Bloomberg BNA “As FCPA Complexity Increase, Corporate Interest in Self-Disclosure Wanes [11].”

*****

A good weekend to all.